Monday, July 25, 2011

Thomson Reuters Challenges: Turning a Ship of the Line into Superfrigates

WSJ.com and others are covering the recent management shifts at Thomson Reuters, which have claimed Markets Division COO Devin Wenig. Man, I don't envy CEO Tom Glocer's situation. Thomson Reuters is about the only media company with fundamentally profitable financials, but their board seems to be yearning for its long-lost growth company potential. Quite a challenge, especially when investment banks, hedge fund and portfolio managers and others aren't staffing up with the headcounts of young people to fit in with some of their core strategies in finance. It's auto-trading or quants - trading and sales is becoming a shadow of its former self. The solution is not easy, because it involves making long-term investing interesting again to both securities underwriters and average investors. TR can't wave a wand and make that happen.

In the meantime, Bloomberg, LP has accepted this reality to some greater degree and is investing in applying the lessons of real-time information management to covering Washington and other political centers, where much of the access to capital lies right now. A risky strategy in the short run, but probably sound for the long run. Factset continues to chip away that the everyday portfolio manager, giving them the tools to get their job done, not always in a flashy way but they help them to get the numbers crunched. Given these competitive challenges, it's a small miracle that TR has done as well as it has.

Where to go from here? Well, that's what consultants are supposed to get paid to help figure out, but a few quick thoughts. First, revisit pricing models. The street doesn't like transaction-priced information services from vendors, or even from clearinghouses or crossing networks, for that matter, but if information vendors are partners in giving them enormous market advantages in low-latency trading, perhaps the structure and level of the pricing needs to be reconsidered. Beyond a certain point, the houses can't afford to do it themselves with enough entrepreneurial oomph to keep up with the requirements, even with - or, perhaps, especially with - a consortium. They know it. Call their bluff.

Secondly, perhaps focus a bit less on gee-whiz services for sales and trading and a bit more on services that help them to have a better product to sell. It may sound a little nutty, but why not buy a major ratings house, gut it, and do ratings right? Worth its weight in gold, and a sure cash cow in and of itself - the indirect benefit being that people would have more confidence in investments. Nobody trusts analysts anymore. That needs to change, and perhaps TR could make that change to shake up the game and steal a march, to mix metaphors. Investor confidence in fundamental investments will put butts in sales and trading chairs - maybe not like the old days, but moreso.

Finally, think a bit more like Bloomberg and think about the big picture of what your fundamental strengths are. Real-time on a global basis like none other. Access to credible players via your news organisation. A deep understanding of how people really use computer interfaces professionally. These are assets that have been won through centuries of dedication to being a leading service provider. But they don't have to be applied to the same-old, same-old. Be like companies in applied sciences that are trying to find blue oceans and adjacent markets for their growth. The whole world is becoming a real-time, transaction-driven economy; how do you want to play in it?

My best regards to my former colleagues at Thomson Reuters, it's been a few years, but the quality of the work that they put out still impresses. Perhaps its time to turn the ship of the line into a squadron of superfrigates, those fast, strong  and ultimately successful fighting ships that challenged both larger and smaller ships in the early 19th century. You've got it in you. I just hope that your board is prepared to be ready to get what they ask for, because being a growth company isn't easy.
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